“Suddenly the voice of the laborer, which had been stifled in the storm and stress of the process of production, rises: The commodity that I have sold to you [my employer] differs from the crowd of other commodities, in that its use creates value, and a value greater than its own. That is why you bought it. That which on your side appears a spontaneous expansion of capital, is on mine extra expenditure of labor power.”

Karl Marx, Capital, 1867, pgs. 257-258.

“The prudent, penniless beginner in the world, labors for wages awhile, saves a surplus with which to buy tools or land, for himself; then labors on his own account another while, and at length hires another new beginner to help him. This, say its advocates, is free labor–the just and generous, and prosperous system, which opens the way for all–gives hope to all, and energy, and progress, and improvement of condition to all.”

Abraham Lincoln, An Address Before the Wisconsin State Agricultural Society, Milwaukee, Wisconsin, September 30, 1859.

INTRODUCTION

Abraham Lincoln and Karl Marx, two radically different figures in world history. However, each in his own way expressed the prevailing belief held during their time that every individual is naturally endowed with a collection of mental and physical capabilities which may be exercised for the purpose of producing anything of value. This collection of natural capabilities is known as “labor power.” In contrast to labor power, “labor” is the exercise of labor power through the expenditure of time and effort toward actual work for the production of a good or service.

For an individual, labor power has its greatest good, and is capable of bringing about meaning, value and creativity, when it is used for the individual’s “own account.” On the other hand, labor power becomes a mere commodity when it is bought and sold on the market. Thus, when an individual sells his or her labor power to an employer in exchange for a wage and an agreement by the individual to place him or herself in a position of subordination, such individual’s labor power becomes a basic and interchangeable good used as an input in the production of another good or service which is then sold at a higher value by the employer.

In September 2019, the state of California enacted a law popularly known as “California AB5” or simply “AB5”. The law essentially makes all work relationships in California an “employer-employee relationship” by default unless the nature of the work relationship has characteristics that meet all of the prongs of a three-part test for establishing an “independent contractor relationship.”

By all accounts AB5 was legislated and signed into law by California policymakers in response to a seemingly growing public outcry that individuals performing work through electronically-mediated (or digital) labor platforms such as Uber, Lyft, Instacart or DoorDash were receiving relatively low pay and no benefits of the type customarily received by persons classified as “employees.” Critics of electronically-mediated labor platforms were quick to point out that the “low pay-no benefits” circumstance experienced by some individuals working with such platforms was proof that the digital labor platforms were exploiters of workers in particular, and society in general. Thus, although AB5 theoretically applies to all industries in California, it seems fairly evident that the real targets of the law are the electronically-mediated labor platforms.

For California policymakers, the solution to the perceived problem of worker exploitation by the digital labor platforms was obvious. Simply seek to make all individuals obtaining work through digital labor platforms “employees” of those platforms so that they would be entitled to employee-centered social welfare safeguards such as minimum wage, overtime compensation, collective bargaining rights, access to workers’ compensation and unemployment insurance.

Unfortunately, instead of achieving what would be considered a noble goal of correcting an imperfection in a labor market, AB5 represents a rash action grounded in unenlightened thinking, the substance of which is to carry on with common law principles that are incapable of considering the fact that a deindustrializing America has become a home to new and evolving work relationships beyond the conventional work relationship categories of employer-employee and independent contractor. With its bias toward the promotion of employer-employee relationships, AB5 also ignores the fact that behind the social welfare benefits that accrue to an individual classified as an “employee,” there is a trade-off that requires individuals to commoditize their individual labor power and to sell that commodity into a relationship of subjugation. While the commoditization of labor power may be acceptable by some digital labor platform workers, there are substantial numbers of other such workers for whom it is not acceptable. Indeed, there are numerous individuals that participate on digital labor platforms because it allows them the opportunity to exercise their labor power for themselves, and away from the control of another person.

Through the enactment of AB5, California appears to be communicating to its citizens that it does not believe in the capacity of an individual to utilize his or her labor power for individual or social well-being. By attempting to indiscriminately shove an entire group of individuals into the classification of “employee” because of their participation on a digital labor platform, California is seemingly stating that the only thing an individual’s labor power is good for is being a commodity to be sold to another person for that other person’s use in creating value for themselves. How did a state that has historically prided itself on being a socioeconomic thought leader in the U.S. devise such a conservative and anti-progressive solution to the challenges of the changing nature of work and work relationships in the U.S.?

With the enactment of AB5, California for the moment has missed the opportunity to heed the call that structural transformations taking place in the U.S. require the development of laws creating new categories of workers beyond the binary choice of employee or independent contractor. One or more such new categories of workers should be designed to promote labor power and create workable social systems that encourage the development of fair work relationships in which individuals can maximize their labor power for their own benefit and the benefit of society at large.

AMERICA’S 200-YEAR-OLD WORK RELATIONSHIP KNOWN AS THE EMPLOYER-EMPLOYEE RELATIONSHIP

One may very well have disagreements with many if not most of the philosophies espoused by Karl Marx. However, there is one observation that he was correct about, that is the different notions of labor power and labor. Every human being is inherently endowed with labor power. Labor power is all of the actual and unexpressed potentialities that we possess as human beings. It is the physical and mental ability of human beings to potentially perform work. Labor on the other hand is the actual exercise of labor power to achieve some tangible result or create something of use value. One can labor for one’s “own account” or one can labor for another person.

During pre-industrial times in the U.S., it was labor power as exercised for one’s own account that was recognized, developed and revered as the way for an individual to gain independence and prosper, as well as improve conditions within one’s broader social surroundings. However, all of this changed with the advent of the First Industrial Revolution which brought with it an insatiable need for individuals to subjugate themselves to a factory system that purchased their labor as a commodity ingredient for mass produced goods. This demand by U.S. industry for commoditized human labor power, along with the concurrent growth in the number of individuals willing to sell their labor power to business organizations in exchange for a wage, brought into being free labor markets in the U.S. It is out of the development of First Industrial Revolution labor markets that the present-day employer-employee structure came forth.

Suffice it to say that since approximately 1790, practically all social policies, governmental regulations and laws relating to work in America have been geared toward commodifying labor power by fostering labor markets, having as many people as possible become employed through these labor markets, and thereafter attempting to ameliorate labor market imperfections through government regulation of the employer-employee relationship. Over time, what has been layered within this process of developing the modern employer-employee relationship in the U.S. has been the institution of social welfare apparatuses such as the minimum wage, unemployment insurance and worker’s compensation insurance for the purpose of decommodifying labor. Fundamentally, for the U.S. worker, the modern employer-employee relationship represents a rigid trade-off between preserving and utilizing labor power for one’s own use versus access to social welfare benefits designed to lessen the harshness that markets (particularly labor markets) can sometimes bring to an individual’s life.

In the U.S., the employer-employee relationship provides the employer with extensive control over how, when and where a worker labors for the employer. In the 21st century, employer control over employees is astonishingly sweeping. Today, employers are within their rights to establish workplace rules such as prohibiting employees from having casual conversations during work (casual conversations can be considered “time theft” from an employer), inspecting the personal belongings of workers to prevent theft, and regulating when a worker can use a restroom so as not to break processing line flow. The ability of employers to use monitoring technologies within the employer-employee relationship means that employers are able to track the minute-by-minute movements and performance of employees during the course of their time on the job. Make no mistake about it, in some situations being an employee in the U.S. entails more than just selling one’s labor power for a wage, it also means the sale of self-esteem and dignity.

On a somewhat flip side of employer control, the employer-employee relationship in the U.S. is the gateway for access to a substantial number of social welfare initiatives. For almost 100 years, the practice in the U.S. has been to make participation in an employer-employee relationship a prerequisite to obtain government mandated programs designed to protect the health and well-being of individuals. If you are an employee, you are entitled to safeguards such as minimum wage, overtime compensation, collective bargaining rights, access to workers’ compensation and unemployment insurance. If you are an independent contractor or self-employed, you are not entitled to any such safeguards.

Beyond the social welfare implications of the employer-employee relationship, there is a fiscal one. Every year in the U.S. there is a federal and state “tax gap” that occurs that numbers in the hundreds of billions of dollars. The federal and state tax gap is the difference between taxes due and taxes paid voluntarily and on time. For a variety of reasons such as wage withholding requirements and developed information reporting protocols, the employer-employee relationship has historically produced higher levels of tax compliance than occurs with independent contractors or self-employed individuals.

Quite frankly, it is the social welfare distribution and fiscal efficiency role that the employer-employee relationship plays in the U.S. that will oftentimes drive policymakers to make the employer-employee relationship the preferred category for a particular work relationship even when it is questionable as to whether the particular work relationship is indeed one of employer-employee.

THE NATURAL RISE OF THE NONTRADITIONAL WORKER IN AMERICA

Starting in the late 20th century, the U.S. began a process of deindustrialization as its industrial manufacturing sector, the centerpiece of the long-term employer-employee relationship in the U.S., began to shed jobs. The U.S. deindustrialization process was kicked into high gear by the Third Industrial Revolution which saw the use of electronics, computers and information technology to increase productivity in the manufacturing sector and systematically decrease the percentage of American workers employed within U.S. manufacturing. In the 1950s, approximately 30% of U.S. workers were employed in manufacturing. Today that percentage is approximately 8%.

As deindustrialization in the U.S. was taking place, a corresponding growth in the U.S. services sector began to take place. As we discussed in our article titled “Innovating the Business of Gratuities”, the growth of the U.S. service sector has been so remarkable that the provision of services constituted 68% of U.S. GDP in 2018. Without going into great detail about the economics of manufacturing versus the provision of services, it is sufficient to say that unlike manufacturing, the provision of services has always required more flexible staffing to accommodate demand fluctuation than in manufacturing. This flexibility need has manifested itself in shorter, less permanent work relationships, and a declining importance of firm-specific human capital. It is these factors that have combined to create the ascent in the U.S. of the “nontraditional worker” – a term comprising contingent (temporary) workers, alternative (independent contractor, on-call worker, or temp agency) workers and electronically-mediated (web or app-based) workers – that now constitutes approximately 13% of the U.S. labor workforce.

One of the more interesting aspects of the growing service sector, and the corresponding growth in the number of nontraditional workers in the U.S., has been the emergence of online digital labor platforms such as Uber, Instacart and Grubhub. Using the power of digital technologies, these labor platforms have been able to create matching marketplaces where nontraditional workers looking to exercise their labor power for their own account are efficiently matched with customers seeking to utilize the services offered by such workers. Despite their seemingly innocuous role of mediating the supply and demand for services provided by nontraditional workers, online digital labor platforms have not been without controversy regarding their economic relationship with workers that participate on such platforms.

Certainly, some of the practices engaged in by particular digital labor platforms vis-à-vis the nontraditional workers participating on the platforms (most notably the expropriation of gratuities received by workers from customers) have been at times inappropriate. However, given the fact that only about one percent (1%) of all nontraditional workers in the U.S. participate on a digital labor platform, and taking into consideration that workers participating on these platforms have various individual experiences and circumstances with the digital labor platforms they participate on, it is hard to understand why digital labor platforms have become the poster child for why some nontraditional workers receive poor pay in today’s evolving U.S. economy.

In absolute terms, a more productive focus of social and policymaker outrage concerning the plight of low wage workers in the U.S. should be directed at certain traditional employer-employee relationships in the U.S. Millions of people in the U.S toil as employees in low-wage jobs in which federal and state laws exist that sanction sub-minimum wages such as the “tipped minimum wage,” or that establish minimum wages that even in states like California are insufficient or barely sufficient to meet the living wage needs of a single individual.

By all accounts, the growth in nontraditional work should bring with it a renewed focus on labor power, and how individuals can best maximize their labor power for their own benefit. After all, by its very nature, nontraditional work essentially makes the nontraditional worker a “microbusiness” in and of him or herself, and requires the nontraditional worker to make a series of decisions at any given time about how to allocate his or her labor power across one or more shorter-term work relationships.

It is clear from available data that many nontraditional workers value the opportunity to control and exercise their labor power for their own benefit. A 2016 study conducted by Intuit indicated that nearly 40% of electronically-mediated workers chose nontraditional work even when other work options were available. The fact of the matter is that substantial numbers of nontraditional workers are making the personal decision not to commodify their labor power and sell it into a labor market, but instead to utilize their labor power for their own account and benefit.

CALIFORNIA’S DECISION TO COMMODIFY LABOR POWER AS A SOLUTION TO THE PROBLEM OF LOW WAGE WORK

In the face of U.S. deindustrialization and the broader economic trends of a growing service sector and nontraditional workforce, the state of California enacted California AB5 (AB5) into law in September 2019. The intention of AB5 is to make all work relationships in California an “employer-employee relationship” unless the nature of the work relationship has characteristics that meet all of the prongs of a three-part test for establishing an independent contractor relationship. Although AB5 theoretically applies to all industries in California, it seems fairly evident that the real targets of the law at the moment are the electronically-mediated labor platforms such as Uber, Instacart and DoorDash. To date, litigation commenced by the state to “enforce AB5” appears to be exclusively centered around electronically-mediated labor platforms. [See recent litigation in the cases of People of the State of California v. Uber Technologies, Inc., et al., San Francisco Superior Court, Filed May 5, 2020 and Labor Comm. For State of California v. Mobile Wash, Inc., et al., Los Angeles Superior Court, filed July 1, 2020].

At the risk of sounding cynical, the underlying purpose and rationale for AB5 is really quite transparent. California policymakers were confronted with the problem of some nontraditional workers receiving low wages and no benefits from their work, and in particular the participation by some such workers on digital labor platforms. By self-confining themselves to a view of the world as only consisting of a binary labor relationship choice of employee or independent contractor, it became an automatic exercise for policymakers to try and make as many work relationships as possible be considered as an employer-employee relationship. After all, it is the employer-employee relationship that provides U.S. workers with the most definitive and expansive set of social welfare benefits possible. Supposedly, if you turn nontraditional workers into “employees,” then voila, the low wage, no benefits problem experienced by many nontraditional workers is solved.

No one should question California’s legitimate interest in protecting all workers in the state or in enforcing laws relating to true employer-employee relationships. But it is hard to say that AB5 does this. California AB5’s employer-employee “slotting approach” as a solution to a much larger structural change in how work is performed in deindustrializing America smacks of a “solution looking for a problem” method of solving an important social issue.

There are a few reasons why AB5 is problematic. However, no reason is more troublesome than the law’s effect of treating every nontraditional worker participating on a digital labor platform the same, even those workers that have an express desire to utilize their labor power for their own benefit. Like it or not, digital labor platforms do provide individuals with the ability to exercise their labor power in a manner not possible within the standard employer-employee relationship. With its bias toward the promotion of employer-employee relationships, AB5 ignores the fact that behind the social welfare benefits that accrue to an individual classified as an “employee,” there is a trade-off that requires individuals to commoditize their individual labor power and to sell that commodity into a relationship of subjugation. What policymakers fail to realize is that there are numerous individuals that choose to participate on digital labor platforms so that they are able to exercise some measure of their labor power for their own benefit, and away from the controlling presence of an employer.

Unquestionably there are California policymakers that will argue that digital labor platforms do not provide workers participating on the platforms with any real “entrepreneurial opportunities” to exercise the labor power championed in this article. Admittedly, if this were true, our extolling of labor power and its potential exercise within electronically-mediated environments would indeed be wholly illusory. But it is not.

As a society, we continue to be in the midst of a technological and digital revolution that, while painfully destroying old socioeconomic models, is also creating new tools and products that are democratizing technology and providing individuals all manner of opportunities to exercise their labor power for their own benefit. It may be true that most digital labor platforms themselves do not provide participants with “in-platform” entrepreneurial opportunities. However, new and separate platforms and tools are being created with the express purpose of providing workers with the ability to leverage their individual and unique participation on digital labor platforms into new and more personally beneficial economic and social transactions that occur away from the digital labor platforms they may work with. For example, there is Dumpling, a start-up company that has developed a platform that allows individuals to start, run, and grow their own personal shopping business. Presumably, individuals working with a digital labor platform now have an opportunity to convert customers that they have encountered during the course of their labor platform work into their own personal customers (for their own shopping business) through the use of the Dumpling platform. Or, take the Mobilitypay Holdings product called Gigafin, which is a mobile application set to be released presently which is designed to, among other worker-related benefits, increase the amount of gratuity income received by workers from the very customers they encounter through their participation on a particular digital labor platform.

While there are certainly a number of nontraditional workers participating on digital labor platforms whose personal objectives do not involve exercising their labor power for their own benefit (meaning an employer-employee relationship works fine for them), there are a substantial number of other workers whose personal objectives do involve them exercising their labor power for their own benefit, and for whom coming under the control of an employer directly threatens such personal objectives. Recalling that employers have sweeping control over how, when and where an employee performs his or her job, a digital labor platform turned “employer” would be well within its rights to prevent a worker from utilizing during their work time personal tools or mobile applications that could help a worker leverage his or her relationship with a digital labor platform for particular personal income or social opportunities that are available away from the platform. In recognizing the foregoing, can we say with confidence that it is in the best interest of California and all of its citizens that all individuals working with digital labor platforms be made to sell their labor power to the platforms they associate with , and abandon any desires they may have to use their labor power for their own benefit? We would think the answer is no.

A BETTER AND MORE PROGRESSIVE APPROACH THAN AB5

It is apparent that America’s 200-year-old practice of classifying workers as either employees or independent contractors no longer meets society’s need to recognize and protect new forms of work relationships. So what is a better approach than AB5?

A better approach than AB5 would be the creation of a new category of worker which would be designed to allow certain nontraditional workers to participate on digital labor platforms without having to commoditize their labor power and become an employee. Ideally, such a worker would have the freedom to exercise his or her labor power for personal benefit, and to liberally use third-party tools and mobile applications for the purpose of leveraging his or her relationship with the digital labor platforms they work with in order to produce higher quality work outcomes than could be achieved by simply being an employee of the platform.

We could imagine a new category of worker called the “Self-Determining Worker.” In order for an individual to be classified as a Self-Determining Worker, the individual would have to demonstrate a degree of economic independence from a digital labor platform(s) that the individual is associated with. Economic independence could be determined by the level of payments that the individual directly received from a digital labor platform. For example, if the individual derived more than 60% of his or her income from payments received directly from a digital platform, then that individual would be deemed “dependent” on the platform and could be classified as an employee of the platform. However, let us say that an individual is utilizing a personal tool or mobile application such as Gigafin which results in that individual receiving payments directly from customers they serve (such as gratuity payments), or other economic benefits directly from Gigafin, that constitute 60% of that person’s income, then the individual should not have to be classified as an employee, but would be classified as a Self-Determining Worker. To the extent that policymakers believe that despite their relative economic independence from a digital labor platform, the Self-Determining Worker needs certain other protections (for example, anti-discrimination protection), then such protections could be made part of the Self-Determining Worker category.

It should be noted that the idea of creating new worker categories beyond that of employee and independent contractor is not conceptually new or novel. Confronted with similar issues that AB5 has attempted to solve, some deindustrializing Western countries have demonstrated visionary leadership by creating new worker categories to more appropriately reflect the differing work relationships that are being created in the 21st century. Canada’s “dependent worker, ” Italy’s “lavoratore parasubordinato” and Spain’s “trabajador autonomo economicamente dependiente” are examples of such new worker categories.

In the end, structural transformations are rapidly taking place in the U.S. labor markets. These transformations are fracturing centuries old work relationships and are requiring the accommodation of new forms of work relationships. These newly formed work relationships cannot be accommodated by simply trying to make them into workforce associations we are seemingly bound to by common law. Instead, policymakers must recognize the need for new categories of workers, and create new legal systems to support these new categories of workers, especially those that are intent on utilizing their labor power for their own benefit, and absent the presence of another person who has the ability to control their unique destiny.